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Implementing Consignment Inventory (Part 3 of 3)

In previous blog posts, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.

Several other questions remain to be answered, i.e.: “How do we verify the consignment inventory quantities?” and “How do we finish the contract without ending up with extra inventory?”

Cycle Counting/Physical Inventory
Consignment inventory is still an asset of the company that currently owns it. It is therefore the distributor’s fiscal responsibility to periodically count that inventory to make sure it is still in its proper place. If you have used the procedures defined in the previous blog posts, then you can use the standard cycle counting or physical inventory module that is built into Epicor ERP v9 or v10.

Since Epicor supports counting by warehouse ID, you can simply initiate a physical inventory for your consignment warehouse. If you have multiple customers, you would have multiple warehouses, with each warehouse to be counted separately.

Of course, in order to do this inventory check, you still need access to the inventory itself, or you need a trustworthy customer that will return the physical inventory results.  It is up to you to determine what you are going to do with any adjustments that are found.

  • If during the count, you find more parts that were supposed to be there, that may mean:
    • You have overbilled your customer for product they did not actually use, or
    • You shipped more parts than you acknowledged in the electronic transfer order.
  • If during the count, you find fewer parts than you were supposed to:
    • Your customer has used more parts than they have told you about.

In either of the above two cases, you need to confirm that there is a clear declaration of who is responsible for any variances found during the physical inventory. If you followed all of the procedures, there should be no unverified variances in the shipment. This would then leave only one option for the variance: issue a credit or an invoice for the difference in inventory quantity.

Closing the Contract
As the contract is coming to an end, you want to ensure that you do not end up with large quantities of inventory sitting in your customer’s consignment warehouse. At some point, they will not want that inventory anymore, and you will need to take it back (unless you have a clause in your contract to protect you).

Our recommendation is to closely monitor those parts as the contract is winding down, to make sure you have reduced or eliminated the minimum on hand/safety stock levels that you have defined throughout the system. Also, verify that any forecasts that the customer has delivered represent real, sellable product.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services

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